UNIVERSITY SCHOOL OF MANAGEMENT

KURUKSHETRA UNIVERSITY,
KURUKSHETRA
PROJECT REPORT
ON
DISTRIBUTION NETWORK PLANNING,
CHANNEL MANAGEMENT DECISIONS AND
CHANNEL INTEGRATED SYSTEMS

SUBMITTED TO:
SUBMITTED BY :
MS Gurmeet kaur
Tamanna Arora(17)
Amandeep kaur(63)
Manisha Kalra(10)

DISTRIBUTION :
Distribution refers to the steps taken to move and store a product from the supplier stage to a
customer stage in the supply chain.

DISTRIBUTION NETWORK:
A distribution network is an institution through which goods and services are marketed.
Network give place and time utilities to consumers. In order to provide these and other
services, channels charge a margin. The longer the Network the more margins are added.
a system where all distribution decisions, including the purchasing of raw materials and
parts, as well as the movement of finished products, are taken globally
Why Network Planning is necessary :

Find the right balance between inventory, transportation and manufacturing costs,

Match supply and demand under uncertainty by positioning and managing inventory
effectively,

Utilize resources effectively by sourcing products from the most appropriate

manufacturing facility

STEPS IN DISTRIBUTION NETWORK PLANNING:

Step 1: Analyzing Consumer Needs:- Cost and feasibility of meeting needs must be considered
Step 2: Setting Channel Objectives:- Set channel objectives in terms of targeted level of
customer service. Many factors influence channel objectives.
Step 3: Identifying Major Alternatives.
Step 4: Evaluating Major Alternatives:- Evaluate the major alternatives like Economic criteria,
Sales, costs, profitability, Control issues, Adaptive criteria.

key decisions when designing a distribution

network:

 1. Will product be delivered to the customer

location or picked up from a preordained site?
2. Will product flow through an intermediary (or
intermediate location)?

Distribution network designs :

1. Manufacturer storage with direct shipping
2. Manufacturer storage with direct shipping and intransit merge
3. Distributor storage with package carrier delivery
4. Distributor storage with last mile delivery
5. Manufacturer / distributor storage with costumer
pickup
6. Retail storage with customer pickup
Manufacturer Storage with Direct Shipping
In this option, product is shipped directly from the manufacturer to the end customer, bypassing the
retailer (who takes the order and initiates the delivery request). This option is also referred to as drop
shipping. All inventories are stored at the manufacturer. Information flows from the customer, via the
retailer, to the manufacturer, while product is shipped directly from the manufacturer to customers as

Manufacturer Storage With Direct Shipping and In-Transit Merge

Unlike pure drop shipping where each product in the order is sent directly from each manufacturer to
the end customer, in-transit merge combines pieces of the order coming from different locations so
that the customer gets a single delivery

Distributor Storage with Carrier Delivery:

Under this option, inventory is not held by manufacturers at the factories but is held by distributors /
retailers in intermediate warehouses and package carriers are used to transport products from the
intermediate location to the final customer. Amazon.com as well as industrial distributors like W.W.
Grainger use this approach combined with drop shipping from a manufacturer. Information and
product flows when using distributor storage with delivery by a package carrier

Distributor Storage with Last Mile Delivery

Last mile delivery refers to the distributor / retailer delivering the product to the customer's home
instead of using a package carrier. Webvan, Peapod, and Alberston's have used last mile delivery in
the grocery industry. Unlike package carrier delivery, last mile delivery requires the distributor
warehouse to be much closer to the customer, increasing the number of warehouses required. The
warehouse storage with last mile delivery network

Manufacturer or Distributor Storage with Consumer Pickup

In this approach, inventory is stored at the manufacturer or distributor warehouse but customers place
their orders online or on the phone and then come to designate pickup points to collect their orders.
Orders are shipped from the storage site to the pickup points as needed

Retail Storage with Customer Pickup

In this option, inventory is stored locally at retail stores. Customers either walk into the retail store or
place an order online or on the phone, and pick it up at the retail store. Examples of companies that
offer multiple options of order placement include Albertsons.com.

Factors Influencing Distribution Network

At the highest level, performance of a distribution network should be evaluated along two
dimensions:

1. Customer needs that are met

2. Cost of meeting customer needs

The customer needs that are met influence the company's revenues, which along with cost
decide the profitability of the delivery network.

Following services should be provided to the

customers by a good distribution network:
Response time
Product variety
Product availability
Customer experience
Order visibility

 Returnability
Response time is the time between when a customer places an order and receives delivery. Product
variety is the number of different products / configurations that a customer desires from the
distribution network. Availability is the probability of having a product in stock when a customer
order arrives. Customer experience includes the ease with which the customer can place and receive
their order. Order visibility is the ability of the customer to track their order from placement to
delivery. Returnability is the ease with which a customer can return unsatisfactory merchandise and
the ability of the network to handle such returns.
It may seem at first that a customer always wants the highest level of performance along all these
dimensions. In practice, however, this is not always the case. Customers ordering a book at
Amazon.com are willing to wait longer than those that drive to a nearby Borders store to get the same
book. On the other hand, customers can find a far larger variety of books at Amazon compared to the
Borders store.
4
Firms that target customers who can tolerate a large response time require few locations that may be
far from the customer and can focus on increasing the capacity of each location. On the other hand,
firms that target customers who value short response times need to locate close to them. These firms
must have many facilities, with each location having a low capacity.

DISTRIBUTION CHANNEL MANAGEMENT:

CONTENTS in channel management:

Definitions

Characteristics of Channel of Distribution

Functions of Channel of Distribution
Classification / Types of Channel of Distribution
Channel Systems
Channel Design Decisions
Channel Management Decisions
Physical Distribution and Logistics Management

 Distribution Channel in Pharmaceutical industry

Channel of distribution have a broad impact on the

Marketing program of any firm, because it is one of the
most important component of Marketing-Mix. The other
components of marketing mix are Product, Price and
Promotion.
Most manufacturers of products use marketing
intermediaries to sell their products to the consumers. The
marketing intermediaries make up a marketing channel
(distribution channel or a trade channel). The marketing
channel overcomes the time, place, and possession gaps
that separate gods and services from those who need or
want them.
Definition
The main objective of distribution strategy is getting
the right goods to the right place at the right time at
the least possible cost. In other words we can also
define distribution channel as a way of moving goods
from the point of production to the point of
consumption.

 It can also be defined as an organized network of

agencies and institutions, which in combination
perform all the activities required to link producers with
end users and users with the producers to accomplish
the Marketing task.
Characteristics of distribution channel cannot be over
emphasized by any stretch of our imagination because
without distribution channel marketing task would have
remained incomplete. Following are few main
characteristics of distribution channel:
Characteristics
It requires a minimum of buyer and a seller. Besides
this it may include other middleman.
A basic transaction in distribution channel is the
exchange of ownership / title of goods. Middlemen play
an very important role in transfer of ownership / title of
goods.
Distribution channel creates transactional efficiency.
A distribution channel may be simple or complex.
(Handshake agreement or large contracts)
Distribution channel may be long or short depending
on the companys marketing requirements as well as
the product of the company.
Classification of Channel of distribution:
Own Retail shops

 Personal selling (door to door)

Mail order selling
Automatic vending
Franchised shops
Telephone selling (Telemarketing)
Exclusive Stores/Specialty Stores
E-marketing

Classification/Types of Channel of Distribution

Indirect Channels
Merchandise Agents and Brokers Works on
Commission basis
Merchandise Wholesalers or trade channels
Manufacturer/ProducerConsumer/End User
Manufacturer/ProducerWholesalerConsumer/End
User
Manufacturer/ProducerRetailerConsumer/End
User
Manufacturer/ProducerWholesaler/DistributorRet
ailerConsumer/End User

 Manufacturer/ProducerWholesaler/DistributorSe
mi-wholesalerRetailerConsumer/End User
Manufacturer/ProducerAgent/BrokerRetailerCon
sumer/ End User
Manufacturer/Producer Agent/Broker
Wholesaler Retailer Consumer/End User
Channel Levels:
A zero level channel is direct marketing between producer and consumer.In one level
channel a retailer is between producer and consumer.Two level channels have wholesaler
and retailer.Still longer channels also exist in some industries.

Channel Systems:
Vertical Marketing System
A distribution channel structure in which producers,
wholesalers and retailers act as a unified system. One
channel member owns the other, has contracts with them
and the power that they all co-operate. The economies are
achieved through size, bargaining power and elimination of
duplicated services.
Horizontal Marketing System
A channel arrangement in which two or more
companies at one level join together to follow a new
marketing opportunities where they can combine there
resources and use they optimally.
Hybrid Marketing Systems:

Multi-channel distribution system in which a single firm

sets up two or more marketing channels to reach one
or more customer segments.
Factors affecting choice of Distribution channel
Market Factors:
Nature of Market
Number of Potential Customers
Geographic Concentration
Order Size
Product Factors:
Unit value
Perishable Goods
Technical Nature of Products
Company Factors:
Financial Resources
Managerial Capability
Desire for Channel Control
Service provided by the seller
Middleman Factors:
Product launch

Promotional scheme
Market Information
Environmental Factors:
Economic conditions
Technological inventions
Socio-cultural developments
Political and Legal
Ethical factors and Rival/Competitors channel
Identifying the major alternatives:
Types of intermediaries
Number of intermediaries (Intensive / Exclusive /
Selective)
Responsibilities of each channel member
Evaluating the major alternatives:
Economic criteria
Control criteria
Adaptive criteria
Channel Management Decisions :
Selecting the Channel Members
Motivating the Channel Members
Evaluating the Channel Members

The channel management decisions include selection

of channel members, motivating the channel members
to promote and achieve sales, and evaluation and
modification of arrangements.
Modifications of distribution system are required when
the current system is not working as planned and not
delivering the desired results.
Physical Distribution and Logistics Management:
Marketing logistics involves planning, implementing
and controlling the physical flow of materials, final
goods and related information from the point of origin
to the point of consumption to meet the customer
requirements at the profit.
Logistics goal is to provide customer satisfaction and
customer service, speedy and flexible delivery system,
presorting and pre-tagging of merchandise, order
tracking information and willingness to take back or
replace defective goods.
Main objective of logistics system is to provide
customer satisfaction at the least cost.
Major Logistics Functions
Order Processing
It includes checking customers credit, checking of
stock, order to ship, bills to customers, update inventory
records and send production order for new stocks
Warehousing

Owned / Rented
Types/ Number of Warehouses
Location of Warehouses
Inventory
Inventory Management (Ordering cost and Carrying
cost)
Just in time inventory
Transportation
Rail
Trucks
Ships
Pipeline
Air